Hong KongÆs Securities & Futures Commission (SFC) has introduced guidelines for managers of authorised funds to delegate their investment management functions in more jurisdictions overseas.

The move was in response to the globalisation of fund management firms and the growing trend for fund houses to set up local affiliates close to the markets in which they invest.

The SFC requires the investment management operations of the fund management company or investment delegates of an authorised fund to be based in Hong Kong or a so-called Acceptable Inspection Regime (Air), where there is appropriate regulatory supervision. Acceptable jurisdictions are Australia, France, Germany, Ireland, Luxembourg, the UK and the US.

Up until now, applications for the delegation of investment management functions to non-Air jurisdictions have been considered on a case-by-case and exceptional basis.

The SFC has issued guidelines that will make the process for getting non-Air jurisdiction approval easier.

ôThe guidelines highlight our continuing commitment to facilitating market development without compromising investor protection,ö says Alexia Lam, SFCÆs executive director of Intermediaries and Investment Products.

ôInternational fund houses will benefit from the greater flexibility in the delegation of investment management functions. This will ultimately benefit investors as it brings in more funds from around the world, managed by those closest to the markets where the funds invest,ö she adds.

The Hong Kong Investment Funds Association (HKIFA) welcomes the move.

ôThis is a very pragmatic approach that fully factors into the increasingly global nature of the investment management business,ö says HKIFA executive director Sally Wong. ôIt allows sufficient flexibility for the industry, and at the same time, ensures that there is an optimal level of regulatory oversight.ö

One example of the guidelines is the requirement that the management company of the fund must either be a corporation licensed by or registered with the SFC to carry out asset management regulated activity, or is subject to supervision in an Air jurisdiction.

Another is that the non-Air investment management firm to whom the fund management
functions will be delegated must be properly licensed or registered by its home regulator and must have a good regulatory record.